The State of Tamil Nadu v. Penguin Leasing Ltd. & Ors.

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 31.7.2009CORAMTHE HON'BLE MR.JUSTICE S.J.MUKHOPADHAYAANDTHE HON'BLE MR.JUSTICE RAJA ELANGOWrit Appeal No.2258 of 2000The State of Tamil Nadurep. by the SecretaryHome, Prohibition & Excise DepartmentFort St. George, Madras-9...Appellant/RespondentVs.1. Penguin Leasing Ltd. 1/2, Shiva Krupa IV Main III Cross Ganganhalli Extension Bangalore 32, rep. by its Director.2. The Tamil Nadu State Marketing Corporation Ltd. LLA Buildings, III Floor 735, Anna Salai, Madras rep. by its Managing Director.3. Balaji Distillery Limited No.9, Bazulla Road T.Nagar, Madras 17.4. Shiva Distilleries Ltd. No.2, Venus Colony, II Street Madras-2.5. Mohan Breweries & Distilleries Ltd. 781, Anna Salai, Chennai 2.6. Southern Agrifurance Industries Ltd. 92, G.N.Chetty Street, T.Nagar Madras-17.7. Empee Distiller Limited 695, Anna Salai, Chennai 6...Respondents/Petitioners https://hcservices.ecourts.gov.in/hcservices/ Appeal against the order of the learned single Judge dated13.11.2000 made in W.P.No.5620 of 1993 on the file of this Court.For Appellant : Mr.D.Sreenivasan, Addl.G.P.For Respondent-1 : Mr.Sundar NarayananFor Mr.R.Sunil KumarFor Respondent-2 : Mr.J.RavindranJ U D G M E N T(Delivered by S.J.MUKHOPADHAYA,J.)The writ petition was preferred by Penguin Leasing Ltd.(hereinafter referred to as the "petitioner-Company") in the year1993 to issue a writ of Mandamus directing the Tamil Nadu StateMarketing Corporation Ltd. (for brevity "Corporation") to forbearfrom purchasing Indian Made Foreign Spirits (in short "IMFS") fromany source or person except on the basis of the contract awarded byit, by the method of inviting tenders or by the method of publicauction. The learned single Judge, by the impugned order dated13.11.2000, having allowed the writ petition, the appeal has beenpreferred by the State of Tamil Nadu.2. During the pendency of the writ appeal, in view of certaindevelopments, it is not necessary to discuss the claim and counterclaim of the parties, though it is relevant to notice thedevelopment. 3. Prior to 2003, the State Government used to grant exclusiveor other privilege for manufacturing or selling by retail IMFS.Under Section 17C of the Tamil Nadu Prohibition Act, 1937,(hereinafter referred to as "Prohibition Act") though the power togrant privileges of manufacture and retail sale was vested with theState, under clause (b) to sub-Section (1-A) of Section 17C, it wasmandated to grant such license for exclusive privilege in favour ofthe Corporation for manufacture and marketing of IMFS.4. For the purpose of retail sale, Corporation used to purchaseIMFS from five local manufacturers. It is, at this stage, the writpetition was preferred by the petitioner/ Company in the year 1993.During the pendency of the appeal, the State Government notifiedTamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003 byG.O.Ms.No.202 dated 3.11.2003 from Prohibition and Excise Departmentof the State. The Tamil Nadu Prohibition Act, 1937 was also amendedby Tamil Nadu Prohibition (Amendment) Ordinance, 2003. Under Rule 3,it was prescribed that after promulgation of the Tamil NaduProhibition (Amendment) Ordinance, 2003, the Corporation shall makean application to the Commissioner of Prohibition and Excise for thegrant of licence for the retail vending of liquor in shops and bars https://hcservices.ecourts.gov.in/hcservices/ for the whole of the State of Tamil Nadu. Under Rule 4, it wasfurther prescribed that only on application, the Commissioner ofProhibition and Excise shall grant licence to retail vending ofliquor in shops and bars in the whole State in favour of theCorporation. Under Clause (3) of Rule 4, the Corporation wasauthorised to issue Form-II in respect of each shop where thebusiness of retail vending of IMFS is to be carried on eitherdirectly by the Corporation or through the Co-operative Societies asagents of the Corporation and since the promulgation of the saidwholesale or retail vending of IMFS is now with the Corporation, itmakes it through different shops. 5. So far as the distilleries and breweries in the State isconcerned, the learned counsel for the Corporation produced theminutes of the 110th Board Meeting held on 27.6.2003, wherein thefollowing decision was taken."Agenda No.6 - Installation and utilised capacities ofthe Distilleries and Breweries in the State - Detailscalled for by the Board of TASMAC - Report received fromthe Commissioner of Prohibition and Excise - Placedbefore the Board with other relevant details - Reg. Resolution:-The Board perused the report submitted by theCommissioner of Prohibition & Excise and discussed itin detail. It has noted that as per the detailsfurnished by the Commissioner of Prohibition & Excisethe total licenced capacity of all the IMFS distilleriesin the State is 295.92 lakh cases whereas the averageproduction during the last two years was 142.60 lakhcases. The licenced capacity of all the Breweries inthe State is 230.70 lakh cases whereas the averageproduction was 60.08 lakh cases per annum. The licencedcapacity utilization works out to 48.19% for IMFS and26.04% for Beer. The local installed capacity is 380.80lakh cases of IMFS and 240.06 lakh cases of Beer. Theinstalled capacity utilization works out to 37.45% forIMFS and 25.03% for Beer. Thus it is clear as per thereport that there is enough surplus capacity in theState to produce the required quantity of IMFS/Beer.The Board was informed that molasses is in surplusin the State to the tune of four lakh metric tons perannum.The sales of IMFS in 2002-03 was 142.23 lakh casesand Beer was 97.16 lakh cases. As per the Budgetestimates approved by the Board, the projected sales forthe year 2003-04 is 171.34 lakh cases of IMFS and 111.66lakh cases of Beer. https://hcservices.ecourts.gov.in/hcservices/ The Board noted that the average growth rate insale of IMFS and Beer during the last ten years had beenabout 5% annually.From the above analysis of average annual sales andgrowth rate, the Board concluded that the localproduction capacity of IMFS and Beer is surplus comparedto the projected sales, factoring in the average growthrate in the sale of IMFS and Beer.The Board also noted that currently TASMAC isimporting six brands of IMFS and three brands of Beer.The import suppliers have also applied for collaborationand local production in respect of all the six existingIMFS brands.The Board also noted that with regard to Beer, tie-up arrangements for all the import Beer brands alreadyexist with local breweries and that the local brewerieshave more than enough capacities to produce the requiredquantities locally.The Board noted that tie-up arrangements do notexist for one IMFS and two Beer brands whose marketshare is, however very negligible. It was reported tothe Board that the supply of these brands by themanufacturers have also been irregular.The Board noted that during the last few years, anumber of new Beer and IMFS brands have been permittedto be introduced by the local manufacturers in tie-upwith outside manufacturers in all the three segmentsviz., ordinary, medium and premium. The request of thelocal manufacturers for permission to produce some morenew IMFS and Beer brands in tie-up with the outsidemanufacturers are also under consideration of theGovernment and TASMAC.The Board therefore felt that fresh tie-uparrangements on a case by case basis can be encouragedso that local surplus capacities and raw materials canbe fully utilized.The Additional Director General of Police(Prohibition Enforcement Wing) who was present as aspecial invitee stated that there is a substantialinflow from neighbouring States of non-duty paid stocksas there is a Maximum Retail Price differential betweenTamil Nadu and other States in spite of various measurestaken by the Prohibition Enforcement Wing in the borderareas and in spite of the best efforts of theProhibition Enforcement Wing police. There is also anapprehension that import permits issued for the importof IMFS could be misused for bringing non-duty paidliquor. Due to the proposed heavy reduction in theExcise Duty rates in Karnataka, the possibilities ofsmuggling duty paid liquor items into Tamil Nadu is also https://hcservices.ecourts.gov.in/hcservices/ more.The Board noted that there are no tie-up for localproduction/bottling arrangement for Scotch Whisky andWine brands.After considering the Commissioner's report thatsurplus capacity is available for production within theState of Tamil Nadu of required quantities of IMFS andBeer in the distilleries and breweries of the State andin view of the fact that all the major IMFS and Beerbrands currently being imported have a tie-uparrangement or have applied for tie-up for productionwithin the State, the Board decided that further importorders for the IMFS and Beer brands currently beingimported with the manufacturers of IMFS and Beer itemsfrom outside the State, need NOT be placed from01.07.2003 onwards.In view of the fact that there is no Winery inTamil Nadu and Scotch Whisky is not bottled in TamilNadu, the Board decided to continue the import of Scotchand Wine brands by TASMAC.In this connection, the following resolution waspassed.Resolved to direct TASMAC not to place orders forIMFS and Beer brands currently being imported, with themanufacturers of IMFS and Beer items from outside theState from 01.07.2003 onwards.Further resolved to authorize the Managing Directorto continue the import of Scotch and Wine brands.Also resolved to authorize the Managing Director toinform the above decision of the Board of TASMAC to theGovernment and to the Commissioner of Prohibition andExcise."6. The learned counsel appearing on behalf of the Corporationsubmits that the Corporation is purchasing IMFS from all thedistilleries situated within the State of Tamil Nadu and nodiscrimination is made. In the resolution, it has been noticed thatthere is enough surplus capacity in the State to produce the requiredquantity of IMFS and Beer. Even the molasses is in surplus in theState to the tune of four lakh metric tons per annum, as was noticedby the Corporation. The Board decided that further import orders forIMFS and Beer brands, currently imported with the manufacturers ofIMFS and Beer items from outside the State, need not be placed from1.7.2003 onwards. This was done taking into consideration thecapacity of distilleries to produce IMFS and Beer within the Stateand also the fact that if import permits issued for the import ofIMFS, it could be misused for bringing non-duty paid liquor. Due tothe proposed heavy reduction in the excise duty rates in Karnataka,the possibilities of smuggling duty paid liquor items into Tamil Naduis also more and this fact was also noticed by the Corporation.It https://hcservices.ecourts.gov.in/hcservices/ is also submitted that if any purchase is made from outside theState, the Corporation is bound to follow the Rules, including theTamil Nadu Transparency in Tenders Act, 1998. We have noticed thatunder Section 3 of the Act, the prohibition of procurement has beenmade except by tender. 7. We have heard the learned counsel for the parties and noticedthe development.8. So far as the State of Tamil Nadu is concerned, it is wellwithin its jurisdiction to regulate the matter of manufacture andsale of potable liquor so far as the whole sale or retail sale ofIMFS or Beer is concerned. Now, such power being vested with theCorporation by the State under the Tamil Nadu Prohibition Act, 1937,it is not open to the petitioner/Company to challenge the same. Inthe absence of challenge of the provisions of law, thepetitioner/Company cannot claim the right to sell IMFS or Beer eitheras a wholesaler or retailer. 9. Insofar as the supply of IMFS or Beer is concerned, we havenoticed that the Corporation has given equal opportunity to all themanufacturers within the State. Thus, Article 14 of the Constitutionof India is being followed. The opportunity having given to all themanufacturers of the State, question of following the technicalprocedure of tender does not arise. For the interested persons(manufacturers) within the State of Tamil Nadu, it is very clear thatnow the Corporation procures potable liquor. So far as potableliquor import of IMFS or Beer from outside the State is concerned, inview of misuse of bringing non-paid duty liquor and possibilities ofsmuggling duty paid liquor items into Tamil Nadu, for the present,the Corporation has decided not to go for the same and such decisiontaken on 27.6.2003 cannot be held to be arbitrary. However, if theyimport such IMFS or Beer from outside the State, they have to followthe Tamil Nadu Transparency in Tenders Act, 1998 and other Rules andGuidelines, if any framed by the State Government, such as Tamil NaduIndian Made Foreign Spirit (Supply by Wholesale) Rules, 1983 and etc.10. The order passed by the learned single Judge dated13.11.2000 made in W.P.No.5620 of 1993 stands modified to the extentabove.The writ appeal stands disposed of with the aforesaidobservation. There shall be no order as to costs. CMP No.19568 of2000 is closed. Sd/- Asst. Registrar / True Copy / Sub.Asst Registrar https://hcservices.ecourts.gov.in/hcservices/ kplToThe Managing DirectorTamil Nadu State Marketing Corporation Ltd.LLA Buildings, III Floor735, Anna Salai, Madras.+ 2 cc to Mr.A.Sasidharan,Advocate,SR.33906+ 1 cc to Mr.R.Sunil Kumar,Advocate,SR.33943+ 1 cc to Mr.J.Ravindran,Advocate,SR.35215+ 1 cc to Government Pleader,High Court, Madras.SR.33972W.A.No.2258 of 2000. MBS(CO)EM/12.8.09